Williams Company sells womens hats for $12 each. Actual and budgeted sales in units for nine months are as follows:

January (actual) .. 25,000 June (budget) . 50,000

February (actual) 26,000 July (budget) .. 30,000

March (actual) 40,000 August (budget) . 28,000

April (budget) 65,000 September (budget) 25,000

May (budget) . 100,000

The company should have sufficient inventory on hand at the end of each month to supply 40% of the hats sold in the following month.

Suppliers are paid $4.50 each for a hat. One half of a months purchases are paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a months sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale.

Monthly operating expenses for the company are given below: Expenses are paid in the month incurred.

Variable:

Sales commission.. 4% of sales

Fixed:

Advertising $190,000

Rent 22,000

Salaries.. 106,000

Utilities.. 9,000

Insurance 5,000

Depreciation.. 15,000

Additional information:

a. In April the company will pay $53,750 for restructuring costs.

b. Insurance is paid on an annual basis, in November of each year.

c. The company plans to purchase investments for $161,250 cash in May.

d. The company will purchase for cash $40,000 in new equipment during June.

e. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.

f. The company plan to collect $50,000 from common stock issued in May.

A listing of the companys ledger accounts as of March 31, is given below:

Assets

Cash $74,000

Accounts Receivable ($31,200 February Sales;

$384,000 March sales) .. 415,200

Inventory 104,000

Prepaid Insurance .. 15,800

Property and equipment (net) 886,000

Total assets. $1,495,000

Liabilities and Stockholders Equity

Accounts payable $112,500

Dividends payable.. 15,000

Common Stock. 800,000

Retained earnings 567,500

Total liabilities and stockholders equity $1,495,000

The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1.5% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.

1) create A cash budget. Show the budget by month and for the quarter. Determine any borrowings that would be needed to

maintain the minimum cash balance of $50,000.